Investing Doesn’t Work

August 12, 2009

Have you ever looked up the definition of investing? I did. And I couldn’t believe my eyes when I read it. Here it is straight out of Wikipedia.

IN⋅VEST⋅MENT [in-vest-muhnt] – noun;
An investment is the choice by the individual to risk his savings with the hope of gain. An asset is usually purchased, or equivalently a deposit is made in a bank, in “hopes” of getting a future return or interest from it. The word originates in the Latin “vestis”, meaning garment, and refers to the act of putting things (money or other claims to resources) into others’ pockets. It is an asset that is expected to give returns without any work on the asset per se.

Read that last sentence again – “without any work on the asset per se.” Incredible. It appears if you are an absolute sloth unwilling to work you are qualified to invest. It says you can take financial “risk” with “hope” as a strategy and do zero “work” for the potential reward. How can that be a plan for success? What about the, “No free lunch rule”, or “the harder I work the more I make”, or all other true axioms regarding these matters of money? I don’t know about you but if I’m going to hand my money over to someone to invest it I want to make damn sure they know the meaning of the word ‘work’ or better yet I’m going to stand looking over their shoulder every moment they have possession of my money. What am I talking about? In my case I’m going to do the work myself.

It is the attitude of people that they can somehow make money from nothing, from no effort at all, that will greatly lower the quality of life for people globally.

There have been decades of fraudulent accounting, fake gains, the practice of survivorship bias (wherein only the results of surviving companies are acknowledged in the Dow – think GM). Hell I would have been a straight-A student if we threw out all my F’s, D’s, and C’s. Forget the fact there are absolutely no mechanisms in place to protect investor money from pure fraud… none, zero, zilch, nada.
Wall Street has for decades treated your money like its own piggy-bank leveraging it like an elephant on a see-saw to generate fake returns for themselves. They leverage it 10:1 taking massive gambles with your money continually churning you in and out of positions for huge fees over and over like a pimp pumping his whore all the while courting you to keep the money in their piggy-bank year after year. The broker says, “Hey, you’re a smart guy, think long term, in the long haul stocks are great!”, or “Look at this chart. Isn’t that sexy?”, or, “Just look at our company’s earnings! Why would we steer you wrong?” Never do they mention only 6 of the Dow 30 are up over the last decade.

Your best interests are dead last in a long chain of interests, none of them having anything to do with growing your nest egg. Long term “buy and hold” doesn’t work, equities don’t work, unless you’re one of the very few that magically bubble-jumped the tech, dot-com, banking, or energy booms and hit near perfect entries and exits. The “Oracle” Warren Buffett “king of the shills” now says “this is a great time to buy” (last quarter) then went on to lose half his money – - NOT very “Oracally”?.

Think about this… if you were to buy the Dow 30 today and get cryogenically frozen for 30 years, you might think you would awake a very wealthy man per Wall street’s lies right? In Fantasy Land maybe, but the problem with this idea is that not 10% of those companies will even exist in 30 years.

Are you really going to hand your remaining or future money over to the same people who LAST time leveraged/gambled your money, and re-deployed it a hundred times over with complete disregard for SAID money. The fact that these same people are DEPENDENT on your money should make you very worried about their motives.

When I was a player in the “Retail” game 2 decades ago the manager of the office (please watch the short clip from a video of me in 1990s warning that this equities game is not safe) I worked for told us this: “The economic function of a stock broker is to generate commissions.” I would say that this period of my career is where I truly found my conscience and began to really pursue the sterility and pre-planning entrances, exits/goals for a profit target, and “stop losses” to contain risk.

In all the years I worked in these firms I NEVER saw money made by “investing”, only the traders made money never the investors.
Sure they – - the Investors – - were up BIG from time to time – - the dot.com era etc, but their broker always had a play for them to put that “new money” to work, they never made it to the cage to cash their chips.

Me, I decided to come up with my own ideas that I would do with my “own” money that had chance of “making money”. I ate my own cooking! If I was right I got paid twice, one time by my account growing and one more time through performance fees the clients were happy to pay. Then I decided to open a Hedge fund because I felt (pre-Madoff when there were 100s not 10s of thousands of funds) at that time it was a less conflicted relationship. I put up a million of MY personal non-borrowed dollars. I was the 1st one in the pool.
Sorry for the walk down memory lane, but I feel you must look backwards to move forwards. Here are my reasons WHY even if there is a rally in the market it wouldn’t solve/fix anything:

1. “Gambler’s Ruin” http://en.wikipedia.org/wiki/Gambler’s_ruin
A new up cycle or rally cannot replace the trillions that went up in smoke over the past two years, That money is gone! The Bear Stearns, Lehman Brothers, Countrywide, Citibank, AIG and and and (see “Moral Hazard” on the site money is gone right?) A rally won’t help those who have already gone broke will it? The game is already over for most “investors” – - see “Baby boomers” below.

2. Jobs are disappearing and fast! – There are 14 jobs lost for every job created and the quality and pay scale of those jobs is lower than the last. Basically the Ex-mortgage broker, Ex-stock broker, Ex-real-estate agent, Ex-car salesman, Ex-Microsoft employee (insert almost any industry or company name you like) now making your coffee at Star bucks (before they too go the way of Winchell’s donuts) are NOT going to buy a new Cadillac Escalade and a new overpriced house (with a fake loan) to stimulate the economy are they?

3. The baby boomers of which (I know I am redundant and repetitive on this subject!) there are 80 million in existence, 365 of them turn 62 every hour. Are they going to be able to re-build their savings?, are they going to back to work? How do they compete for jobs in this market? Are they going be able to loosen up purse strings anytime soon and spend like they once did (the “house piggy bank” with serial refinancing they were tapping is now gone too!) to keep the economy moving? Probably not. Never has this country been faced with such a bleak demographic outlook, so don’t go back to the last depression and say “gee it all worked out ok”. This is completely different… at that time we were an ascending nation of young people who were fighting a real war, for a real reason and generating tons of manufacturing jobs on our soil.

4. Financial expectations have now shifted for the people with any money left to: “the return OF principal is more important than the return ON principal”. The safe havens of the past are pretty much worthless… Treasuries are paying literally -0- and are now coming into (their safety) question as our trading partners may DEMAND their money back. Call me crazy, but I think it will be difficult to stimulate the economy with a zero saving rate and zero percent interest on that… where is the spending going to come from? the “stimulus package” O boy a few hundred dollars a household should do the trick! with half the money lost and with Real estate in the tank and still tanking sure…

5. Rents – we are now at a point where the “renter” has to do more due diligence on the “Landlord” than the other way around… this will provide leverage for the renter to demand lower rents as the banks end up taking back a HUGE % of the commercial real estate (lots empty already) that was over leveraged during the Greenspan created Real Estate bubble.

6. Extinction of US companies General Motors, AIG insurance , Citibank, and many other large cap companies being propped up by the US government (they should have been allowed to go bankrupt versus BAILED OUT on our dime) are vaporizing generations of wealth and creating generations/centuries of debt and in the end we will probably never get the books straight. You want to cry about Bernie Madoff? This (the US debt) is a bigger Ponzi Scheme. Finally, look at the domino effect this is causing!!! more lost jobs, lack of consumer spending, past/future real estate depreciation, equity depletion, and eventually loss of hope and then capitulation – - then the broad market will be a BUY for a time frame, but I am talking Dow 3-4000 NOT here!

7. Fake theories – MTP Modern portfolio theory and VAR have PROVEN to be complete fraud. “Buy and hold” is just a cruel joke. It should be called Loan us your Money while we buy jets, give ourselves monstrous bonuses on top of huge salaries, and throw parties while you bail us out with your tax dollars… go on internet and look at what is done with the bailout money! take your head out of sand! AIG $440,000.00 “spa day”, Citi buys a $50,000,000.00 jet + spends $400,000,000.00 (not a typo) on changing the name on the NY Mets if I read this right?, Northern trust has a $36,000,000.00 golf tournament and so on …

8. “Free-markets” are proven to be gone. The Feds Sunday night intervention of Bear Stearns was unconstitutional but hey, there was no time and it HAD to be done… Honest.

9. The FED over-reaching in scope, it’s NOT a government agency! Thomas Jefferson said over 200 years ago: “Banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and the corporations that will grow around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.”

10. The “Crony Capitalism” and corruption crew has come up with a new twist to the game: all the gains were privatized (check out Paulson’s tax free payday which I will do a work up on shortly on the site) and the losses are socialized with us the taxpayers getting JUST the losers.

If you ever made money in market, got out clean, but reinvested only to lose your gains it is akin to sleeping with a seductress who knowingly (no offense to anyone HIV positive) had AIDS. After learning you’d been in bed with the proverbial devil you pay the doctor a visit. Miraculously you came out uninfected but went straight back to have unprotected sex again with the same seductress who, you guessed it, will eventually infect you just like everyone else.

Think again, before “Investing” AND JUST THROWING YOUR MONEY AWAY…STOP listening to others and gather your own facts and make REAL rational and reasonable decisions with REAL risk and reward exceptions – it’s called WORKING. It’s very hard there are no easy ways to make an easy living – - you owe it to the money you have left!!!

INVESTING WORKS!
But only if you will look at it from the dead now maestro of all technical analysis Nikolay Kondratiev, known for his waves theory and long cycles. In short it’s very simple, there is about 70 years span of each wave from the bottom to the top.
First 70 years are expansionary when global economy grows ( for Americans it means stocks will go up through micro bubbles, but still up), the next 70 years is when economy is in the decline mode (today) and whatever you buy (stocks, farm, gold, real estate,) will melt, where every next offer to buy from you, will be the offer below the price you just paid.
It all makes sense because 1929 was the top of the previous wave, from year 2000 we are in for 70 years of declines to witness.
It doesn’t mean you can’t make money by trading, investing, finding a tech company, working. It just means that if in the first wave even a donkey made money, in the second wave it will not work this easy.
Mark Medayski